Apr 15 / Victor Arduin

Macroeconomics Weekly Report - 2024 04 15

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Where the Chinese economy is heading

  • The impacts of the Chinese economy are being felt both directly and indirectly in various countries. As a major importer of commodities and exporter of industrialized goods, the market is closely watching its economic data to determine whether the country will achieve its growth target of around 5%.
  • In this sense, the industrial segment has been a positive highlight, showing annual growth. In addition, in terms of volume, the country's exports have increased, demonstrating that even in a restrictive global environment, China has found markets for its products.
  • However, there are challenges ahead. Domestic demand remains subdued amid a crisis of confidence and very low inflation. In addition, the crisis in the real estate sector remains an obstacle for the country's economy, increasing pressure for stimulus from Beijing.


In recent years, there have been significant changes in China. Its economy, which for a long time was focused on infrastructure and real estate, is now shifting towards relying more on its exports and domestic consumption.

In this scenario, the performance of its industry will be very important in 2024 to determine whether the country achieves its growth target of around 5%. In addition, the country's international trade shows signs of caution. Although the volume of exports is growing year-on-year in dollars, the figures for March show a fall of 7.5%. Imports also fell by 1.9%.

Therefore, this report will analyze what has been happening in Chinese industry, the consequences for its trade balance and what could happen over the course of this year in relation to its economic growth.

Image 1: China - Exports and Imports YoY (%)

Source: Refinitiv

Image 2:  GDP based on PPP, world share (%)

Source: IMF

Idle industrial capacity has put pressure on industrial prices 

China's industry has been surprising, even in the face of internal structural challenges such as the economic slowdown and an aging population. In addition, the external sector also imposes limits on international trade due to the contractionary monetary policies implemented by the world's main economies. Even so, industrial production grew by 7% in January and February compared to the same period last year, above Reuters' projections for a 5% increase. In March, the manufacturing PMI, an important indicator for the sector, reached 50.8, signaling expansion for the first time since September last year.

However, other data draws attention. While the deflation of producer prices (PPI) has helped to make the country's products more competitive internationally, this explains why exports are falling when measured in dollars, but expanding in volume. On the other hand, this result has been achieved by the idleness of the country's industrial complex and lower domestic demand, a major challenge for the Chinese authorities.

Image 3: China - Industrial Capacity Utilization (%)

Source: Refinitiv

The real estate sector will influence GDP, but from a different perspective

Real estate development has been one of the main drivers of the Chinese economy in recent decades. Despite the current crisis, the sector will be crucial in determining whether China reaches its growth target of around 5% by 2024. However, its relevance is now associated with the pace of its slowdown, rather than its contribution to GDP growth.

The first few months of 2024 continue to show downward trends for the Chinese real estate sector, with residential property sales down by more than 25% and investments falling. In 2013, the real estate sector accounted for 12% of the country's GDP, while this year projections indicate a figure of just over 5%. However, recent data has revealed challenges in both areas, with exports in dollars falling and domestic consumption moderating.

In view of this, pressure is growing on Beijing to implement more stimulus, whether fiscal or monetary, in order to boost the country's economy.

Image 4: China - Real Estate Indicators YoY (%)

Source: Refinitiv

In Summary

Understanding the performance of the Chinese economy is one of the most important challenges for the global market. As a major importer of commodities such as minerals, oil and soybeans, and exporter of industrialized goods such as electronics, machinery and vehicles, China has a significant influence on the world economy.

In this sense, the market is closely watching China's economic indicators, which determine the pace of GDP growth. While the real estate sector continues to show weakness, industrial production has been surprising and will contribute to the country's growth.
In addition, the country's exports are reflecting low prices due to the country's idle capacity. Despite increasing the competitiveness of their products, they point to lower domestic demand and a reduction in company profits.

Expectations are therefore growing of stimulus from Beijing to support the economy, provided, of course, that the government maintains its growth target of around 5%.

Image 1: China - Monetary Conditions Index (Base = 2007)

Source: Bloomberg

Image 2: China - GS Tax Stimulus Basket Index

Source: Bloomberg

Weekly Report — Macro

Written by Victor Arduin
Reviewed by Alef Dias


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